India & China Compete for Outsourcing Revenues

Amoung the top several outsourcing nations, India ranks #1 with China and the Philippines next in line. India’s outsourcing revenue from April 2010 to March 31st 2011 is expected to be US$60-62 billion and was roughly 50 billion the previous year. China’s outsourcing revenue was roughly 36 Billion last year, but is expanding faster than India’s outsourcing revenue. The future is showing that in addition to China, many other nations are going to be catching up to India in the outsourcing industry.

Indian Outsourcing
Although India is currently the world leader in outsourcing revenue, there are many factors that are governing its growth rate. Factors leading to a slowdown in the expansion of Indian outsourcing lie in high attrition rates, poor infrastructure, lack of cultural affinity wiht the West, and rising wages. However, factors in India’s favor include: a reputation of being great at outsourcing, an emphasis on enforcing patent laws, and a diversity of outsourcing services that goes well beyond call centers and IT. Indian companies provide dozens of outsourced services including data entry outsourcing, legal process outsourcing, market research, payment processing, accounting, web design, SEO, and pharmaceutical research which is one of India’s newest outsourcing growth industries.

Pharmaceutical analytical services performed in India are less expensive, better quality, have shorter delivery times, and less downtime than if done in other countries. Additionally, intellectual property protection is excellent in India while China has a questionable reputation in this regard. Pharmaceutical outsourcing is one of India’s new growth industries which is expected to become a multi-billion dollar industry in India in only a few years.

Although the Chinese can compete with India for IT services, and Filipino call centers are gaining market share from India, India has a safe position in the outsorucing industry because they offer dozens of other outsourcing services which are not threatened by foreign competition.

Chinese Outsourcing
China has paved the road for a bright future in quickly growing its outsourcing industry. China has incentives for industries providing outsourcing services which helps to stimulates growth in this sector. Incentives include removing taxes on outsourcing businesses.

China can easily compete with India for IT work, however China lacks workers with good English language skills which is a huge deficit for many types of outsourcing work.

One of the main reasons China has such a promising future in outsourcing is that China is investing in new infrastructure in ecomonic zones faster than any other country. New roads, dams, buildings, and other infrastructure are being built really quickly in China. China’s capacity for getting projects completed quickly is one factor that works to their advantage. China has also worked on building good internet connections and developing workers technical skills.

Putting skills, prices, and infrastructure behind, China’s outsourcing industry is growing at 30% while India’s is growing at 14%. China’s overall economic growth has been a few percent faster than India’s over the last few years, and their growth in outsourcing is also surpassing India’s.

Filipino Outsourcing
The Philippines is a distant third in the global outsourcing market. Their services are mostly confined to call center and medical transcription work due to their good command of English. The Filipino call center industry is neck and neck with India, both commanding slightly less than 6 billion per year, but the Philippines looks like it will be taking the lead, once again to their excellent language skills and cultural closeness to the United States.

Overview
Its hard to see where the outsourcing industry will be in 2020, but my guess is that China will dominate with India in second place. Filipino, Indonesian and African companies will also probably gain a higher overall percentage of market share leaving India with a relatively stagnant revenue in the long run. The overall outsourcing industry will most likely grow tremendously in the next ten years, but Indias percentage of the total looks like it will be shrinking slowly over the next decade.